On September 23, the U.S. Securities and Exchange Commission (SEC) approved wide-spread changes to its highly successful whistleblower program. The rule changes were originally proposed in 2018, and the ensuing two years saw a lengthy debate over which aspects of the proposal would help or harm the program. In the aftermath of the vote, a debate has begun concerning whether or not the final changes are beneficial for whistleblowers.
Some whistleblower attorneys have pointed out that the SEC backed down from two proposed anti-whistleblower rule changes as the main reason that the vote was a win for whistleblowers. The final rule change did not include a controversial “cap“ on the largest whistleblower rewards and featured less strict filing requirements than initially proposed. Other whistleblower advocates point to the dissents of two SEC Commissioners as summations of why the newly approved changes are detrimental to whistleblowers. However, a new Law360 piece features quotes from several corporate attorneys who admit that the final result of the rule changes is, in fact, a win for whistleblowers.
“On balance, the final rule announced today was a major victory for whistleblower advocates and will likely fuel continued activity in this space for a number of reasons,” said Gregory Keating, who represents employers and is chair of Choate Hall & Stewart LLP’s whistleblower, employment and benefits practices.
In addition to the absence of a rewards “cap,” the corporate lawyers pointed to a newly approved role which established a presumption that the highest possible whistleblower reward (30% of the monetary sanctions) will be granted in cases where the sanctions collected by the SEC are $5 million or less, barring the existence of negative factors which would lower the award.
According to Kurt Wolfe, a Troutman Pepper attorney focused on securities enforcement and regulation, “this part of the rule is likely to be the most impactful because this is the space where whistleblowers most frequently play. This not only allows for better headlines in dragging some of those smaller awards up, but it gives whistleblowers more of an incentive to come forward.”
In addition to the specific changes enacted, the attorneys point to the comments made by the SEC Chairman Jay Clayton and those made by all the Commissioners, as a reason why whistleblowers should be encouraged by Wednesday’s vote. All of the Commissioners made it abundantly clear that they fully support the whistleblower program and recognize the crucial role whistleblowers play in the agency’s enforcement efforts.
“The SEC’s whistleblower program is obviously here to stay,” commented Bryan B. House, a partner with Foley & Lardner LLP, who defends companies facing whistleblower claims. “When you step back, a lot has happened in 10 years. The idea that your employees could go to the SEC and [earn] million-dollar bounties for reporting wrongdoing was tough to swallow for some. But now — nine years after the SEC’s initial rules took effect — companies, employees, and the SEC have more or less figured out how to make it work.”
Whistleblower attorneys also note that the SEC’s abandonment of the “cap” highlights the important fact that whistleblower advocates’ voices were heard and considered by the SEC in the rulemaking process. For example, whistleblower attorneys for qui tam firm Kohn, Kohn & Colapinto (KKC) played a crucial role in defending the whistleblower program. KKC partners filed over 12 detailed rulemaking comments and held approximately 15 face-to-face meetings with Commissioners and the staff members responsible for drafting the final rules. “We busted our backsides, trying to make sure the rule changes would protect whistleblowers. Our efforts paid off,” said KKC founding partner Stephen M. Kohn. Kohn met with SEC Chairman Clayton and Commissioners Lee, Jackson, Crenshaw, and Perice advocating on behalf of whistleblowers.